How long can IT outsourcing deliver more for less?

Stephanie Overby |
Feb. 29, 2016

Digital transformation is driving even smaller and shorter deals for IT service providers, but how low can providers go?

The average outsourcing deal was 3.5 years long — a full 15 percent shorter than they were three years ago, with ISG noting that many deals of three years or less in the marketplace as well. How much shorter and smaller can IT outsourcing deals get? “Now that clients have realized the flexibility and value inherent in shorter, smaller contracts, they won’t give that up,” says Keppel. “We expect the trend toward lower contract values and shorter-term commitments to continue. In fact, as we move toward an on-demand norm, it is likely the whole concept of a deal term might feel antiquated and contractual relationships will look more like framework agreements with negotiated terms rather than volume and duration-driven contracts.”

There were nine mega-relationships (worth $100 million or more annually) signed during the last quarter of 2015. However, the total number of such large deals awarded in 2015 — 23 in all — was the lowest in a decade, according ISG.

The next stage may be one in which providers combine IT and business process services to radically engineer a core business function—either via a software-as-a-service solution or through automation. “This is where the next real growth leap is likely to come from,” says Keppel. “Buyers recognize the value of outsourcing and continue to participate enthusiastically in the market. Revenue growth in the future will come from using sourcing to solve new problems.”